This article studies the background and impact of the recent demonetization initiative taken by the Indian Government. Upon the advice of Reserve Bank of India (RBI), Government of India demonetized all old bank notes of ?1000 and ?500 denominations and replaced them with new bank notes of ?2,000 and 500 denominations. As per various statements by the government as well as commercial sources, the key motives of this policy were to counter the shadow economy and eradicate use of illicit and counterfeit cash being used in facilitation of the terrorism and illegal activities. The sudden nature of the policy announcement gave rise to various drastic problems e.g. prolonged cash shortages and public unrest that had a significant effect on small businesses, agriculture, and transportation, threatening the economic output. Simultaneously, it attracted heavy criticism from the opposition parties, prominent economists and international media. The move was widely commended by several prominent factions of the banking industry as well as international pundits. The policy was heavily criticized due to its poor planning and timing thus triggering protests, litigation, and strikes. As far as the economic impact of the policy is concerned, following the announcement, the indices of NIFTY 50 stocks and BSE SENSEX dropped by almost 6% along with various other economic factors which have been discussed later in detail. The move also affected India?s GDP and industrial production. In this paper we will discuss the primary motives and benefits of this policy as well as its impact on the socio-economic scenario of India and her people along with recommendations for future.
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Author Name: Syed Haider Ali Zaidi , Xin-Yu Wang , Pervaiz Iqbal , Sardar Ahmad , Saif UR Rehman and Muhammad Sajid.
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Keywords: Demonetization; Shadow economy; Illicit; Counterfeit; Illegal activities; Terrorism -